You can suffer both a tax levy and a levy from another creditor simultaneously. While there is a cap on how much of your income can be levied, the cap does leave a person with much to live on. If the first levy was not taking the maximum income from you that is allowed, then the second levy could come in and grab more from each paycheck. This is likelier when the second garnishment is the tax levy, because the tax authorities can often garnish a higher percentage of your income than a creditor that has obtained a judgment against you resulting in the authority to have your wages garnished.
If the IRS were the first to garnish a paycheck, it can take such a large amount from you that the other creditor would have to wait in line until the IRS garnishment was lifted, before the creditor's garnishment would take effect.
IRS Levy? Get Professional Assistance
Whatever the issue that caused the IRS to levy a paycheck, a problem this serious demands professional tax assistance. The underlying issue that caused the levy needs to be addressed, whether it be unfiled or unpaid taxes, in order to get the levy stopped. In general, the IRS will not lift a levy if there is a single unfiled tax return for any year the taxpayer would have been required to file, unless the total taxes owed are paid in full.
How Much Can the IRS Take in a Levy?
The IRS has the strongest ability to garnish wages. It does not need a court order, though a taxpayer is supposed to receive a written warning, a Notice of Intent to Levy. A Notice of Intent to Levy usually comes with either a 10- or 30-day warning, allowing the taxpayer some time to try to try and straighten out the situation before the levy takes effect.
The IRS levy can seize a very large portion of a person's income, from each paycheck until the debt is paid. The amount that is exempt from a levy, which is the amount that a person gets to keep, is based on the filing status (single, married filing separately, married filing jointly, and head of household) and the number of people in the household. The IRS could leave a single person with as little as $475 per month to live on! The IRS Form 668W shows the amount of income exempt from IRS levy. Certain types of income are completely exempt from IRS levy, such as unemployment compensation and welfare. Other income can have only a smaller percentage garnished. For instance, the IRS can only garnish 15% of Social Security income.
It is important to know that an IRS levy can effect a person's bank account, too. If you receive a Notice of Intent to Levy or a Notice of Levy, be wary not only of the impact on the paycheck, but on any bank account that is associated with your Social Security Number. This means that an account shared with any other person, such as a spouse, child, or parent, could suffer a levy that would seize all the funds in the account up to the amount owed to the IRS.
A person can take the funds out of the account, prior to the levy, putting them in the proverbial cookie jar, to keep them safe, until the levy is lifted. A person can also open a new bank account at an institution where he has never had an account before and it is unlikely that the IRS will find out about that account very quickly, though if the IRS does, those funds are at a risk of levy, too.
When a bank levy takes place, the bank holds the funds for 21 days from the day the levy is received, then sends the funds to the IRS. The bank levy only affects the money that is the account the day that the levy is received by the bank. For instance, if a deposit is made the day after the levy is received, those funds will not be subject to the levy. A levy does not stop a person from using his account, but the IRS can come back and levy an account more than once, so it is wise to be cautious about keeping funds in the account.
Possible Causes of an IRS Levy
The IRS levies a person for unpaid taxes. Sometimes this is a result of a person not filing his returns and having the IRS file a Substitute for Return (SFR) for him. When the IRS files an SFR for a taxpayers, the IRS does not credit the taxpayer with deductions that the taxpayer would be entitled to claim for himself, such as mortgage interest, dependents, or any business expenses. This means that a person can be levied for a year that would not show any taxes owing, if the taxpayer had filed in a timely manner. In this instance, a taxpayer can replace the IRS filed SFR and prove that nothing was owed. If the IRS accepts the taxpayer filed return, any money taken in either a bank or wage levy will be returned to the taxpayer.
Stopping a Tax Levy
Even one unfiled return can stop a tax levy from being lifted. If all returns are filed up to date, the IRS will be willing to stop the levy if the taxpayer can prove to the IRS' satisfaction that the taxpayer cannot afford to be levied. Instead of the amount levied according to the Form 668W (found in IRS Publication 1494), the IRS will limit the levy to what the IRS feels a person can afford. Unfortunately, the IRS' idea of what the taxpayer can afford is rarely, if ever, the same as the taxpayer's idea. In lifting a levy, the IRS calculates what to take from a taxpayer by using what it defines as "allowable living expenses."
The IRS rules allow for a taxpayer to devote income to basic needs, such as food and clothing, housing and utilities, medical insurance and medical out-of-pocket expenses, transportation expenses for a car payment and for gas, insurance, and maintenance. The IRS makes available charts that show the IRS Standards for living expenses, the amounts it allows a person to spend in these various categories.
Unfortunately, the IRS standards for what it costs to live are not always realistic; the IRS amounts supposedly allow the taxpayer to attend to his or her basic needs, when common sense dictates otherwise. It is not hard to spend more on a car payment or one's housing and utilities than the IRS allows. Still, once a person is in full compliance on the filing of all tax returns, the levy can be stopped and the amount that a taxpayer will have to pay the IRS is limited by the allowable expenses. Prior to that, everything aside from what is exempt on the Form 668W can be garnished.
States approach levies in a similar manner to the IRS, though the amount of income that they can take from a paycheck is less than the IRS can. Each state has different rules when it comes to the percentage of income that can be garnished.
For either the state or the IRS, if a garnishment is in place, the taxpayer will not receive any tax refund that would be forthcoming from a tax return, until the tax debt is paid in full. Also, the state and the IRS can file a tax lien against the taxpayer. The tax lien will appear in the Public Records area of the taxpayer's credit report, damaging the taxpayer's credit score. The lien will stay on the credit report until all tax debt has been paid off. At that time, it can still show on the report, but will show lien satisfied.
Offer in Compromise and Resolving IRS Tax Debt
Keep in mind that there are ways to get pay back less than is owed on taxes or to have them wiped out. One way to take care of a tax debt, for less than is owed, is to submit an Offer in Compromise (OIC). In a successful OIC the taxpayer demonstrates that the taxpayer cannot afford to repay the tax debt, according to the IRS' analysis of the taxpayer's income, living expenses, and assets.
Bankruptcy and Tax Debt
Most personal IRS tax debt can be wiped out in Chapter 7 Bankruptcy, if a person qualifies for a Chapter 7 Bankruptcy and if the following three rules apply.
- The taxes must have been due for three years
- The tax returns must have been filed for two years
- The tax assessment has been in place for 240 days
State rules on including tax debts in a bankruptcy vary state by state. Bills.com offers more information on options for resolving tax debt.
Levy From Non-Tax Creditor
When it comes to the creditor who obtained a judgment against you, there is a limit as to how much can be taken. The amount that your wages can be garnished for the collection of a judgment on an unsecured debt primarily depends on your state's laws relating to wage garnishment. In most states, a judgment debtor's wages can be garnished up to a maximum of 25% of his or her net income.
Two Levies from Different Creditors
The rules are different if a person is facing two garnishments from creditors when neither garnishment is from state of federal taxes owed. Here is some detailed information about having two collection companies garnishing wages at the same time.
Aside from filing for bankruptcy, if eligible to do so, stopping an active levy from a creditor is difficult. A person can change jobs, but it usually will not be too long before the creditor contacts the new employer.
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